Tokens on Trial: Early Learnings About Decentralized Justice

This is what we’re learning from the first ever decentralized community court...

A big problem for exchanges is to decide which tokens to list. They have to analyze one by one to filter out those that are outright scam attempts (e.g., a fake token impersonating a real one) and others that, while not scams, are from poor quality projects or not mature enough in development.

Exchanges spend a lot of time and resources on due diligence.

In March, we launched our Token Curated Registry of Tokens (T2CR). The purpose of this Dapp is to empower the community to create a decentralized list of crypto tokens, to help exchanges in their due diligence process.

Instead of having a centralized entity making all decisions, users submit tokens as candidates to be added to the list and the community decides whether they should be accepted.

To be accepted into the list, tokens must comply with some formal features (e.g., logo should have the right format, the contract address should be legitimate, etc.).

After a token is accepted, it can also apply to receive a “badge” which certifies that it also complies with some additional requirements.

Crypto exchange Ethfinex created the “Ethfinex Badge” in the list. Projects which obtain it are eligible to participate in a community vote to be listed in Ethfinex and Bitfinex exchanges.

For this, they must comply with a number of requirements concerning team, token economics and other criteria listed here.

Spacechain badge request and all the pieces of evidence uploaded so far. The case is still open.

Why Crowdsourcing Matters

Crowdsourcing is the process of getting work done online from crowds. This work involves finding and processing information.

Centralized procedures, such as those traditionally conducted by exchanges, only produce limited information. Exchange managers typically only have access to the version of the story submitted by the team.

The wisdom of crowds substantially increases the amount of information available for decision making. This became clear in several instances of the T2CR, when users submitted evidence about quality of code on GitHub, data on token supply and on the quality of teams of different projects.

Secondly, crowdsourcing also increases the processing capacity of the system. If crowds generated more information but the processing capacity was static, a bottleneck would occur in decision making.

But Kleros’ cryptoeconomically incentivized hive mind system also scales the processing power with the available amount of information.

More Information + More Processing Power = Better Decisions

A Rulemaking Community

Crowdsourcing does not only add to available information and processing power. It also engages the community in rule-making as to better define how the process should work and the goals it ought to achieve.

When the T2CR product was launched, we just had some simple rules about what information was to be considered in order to have a token accepted into the list.

But even something apparently as simple as the criteria for accepting token names and logos proved to be challenging. Should a token be submitted with the name of the token (pinakion, in the case of Kleros) or the name of the project (Kleros)?